1. Field of the Invention
The present invention relates to the field of computer-implemented methods and systems for managing reconciliation and write-offs in an accrual accounting environment.
2. Description of the Prior Art and Related Information
Most companies in the business world use the accrual-based accounting method. When goods are purchased and received, the accrual account is credited. When an invoice is received that is matched to a Purchase Order (or “PO”), the accrual account is debited for the amount invoiced. If all the receipts and invoices for purchase orders are perfectly matched, the accrual account balance should be zero. These accrual accounts must be reconciled and maintained to ensure that liabilities are properly recorded. The accrual account balance may not be zero due to various business problems (over-receipt, over-invoice, invoice not matched to PO, etc). Under such circumstances, the balance in the accrual account must be written-off so that the company's financials can be correctly stated.
Conventional processes of accrual reconciliation and write-off are labor intensive and error prone. At the outset, the user must load all accounting lines to a table from different sub-ledgers (Receiving, Accounts Payable, Inventory, etc). For a large enterprise, the sheer volume of data that must be loaded is enormous and keeps growing. The user must then download these data into a spreadsheet, where they can be grouped based on the amount, PO number, and transaction date. The user conventionally must then operate inside the spreadsheet to identify the accounting entries that need to be written-off. Each identified accounting line must then be marked as written-off. The net value of the write-offs for every accrual account is then used to create offset journal entries in general ledger. This process is highly labor intensive and leads to low confidence in the accuracy of the financial statements, and may lead to problems vis-à-vis regulatory compliance and is not well adapted to creating a reliable and accurate audit reconciliation and write-off trail. The high level of frustration in conventional reconciliation and write-off process calls for a more streamlined, flexible, scalable, and automated accrual reconciliation and write-off process.
FIG. 1 shows a hypothetical set of business transactions to illustrate conventional accrual accounting and write-off processes. In a typical scenario, items may be received at a shipping dock. To keep track of these items, a receiving inspection account may be used. The received items may then be inspected at the dock, and if the items fail inspection, they may be refused and sent back to the originator of the shipment. If the items pass inspection, they may be accepted and the receiving inspection account may be debited and a selected accrual account credited, which creates a liability for the receiving company. In the hypothetical set of business transaction shown in FIG. 1, ten $10 items have been received as shown at 102, and the aggregate value thereof ($100) has been debited to the receiving inspection account, as shown at 104. A selected accrual account is correspondingly credited, as shown at reference numeral 106.
Concurrently or thereafter, an invoice is received for the received items. For whatever reason, the received invoice is for only nine such items, as shown at 108. Therefore, as shown at 110, the account payable account must be credited for the invoiced $90 and the selected accrual account must be correspondingly debited for the invoiced $90, as shown at 112. It is apparent that such transactions result in the need to write-off the balance of $10 from the accrual account (which is an account that is configured to store the enterprise's temporary liabilities) as shown at 114, as the balance in the accrual account is preferably zero. To do so, $10 is debited from the accrual account as shown at 116 and credited to an offset account (an expense account), as shown at 118. This may be done at the end of a predetermined period (e.g., at the end of the month or quarter) or at any selected time.
The accrual and write-off process described above, while barely adequate for a few transactions, is not scalable and may become unduly burdensome as the number of transactions increase. Such a process is also not readily auditable, suffers from usability issues and is not readily automatable, as shown below relative to FIG. 2, which further illustrates problems associated with the conventional accrual and write-off processes. FIG. 2 assumes that two POs have been issued. PO#1 is for a quantity of ten items at $10 each and PO#2 is also for a quantity of ten items, also at $10 each. The aggregate values of the subject items for both PO#1 and PO#2 are to be distributed to the same accrual account, ACCT#1. POs may include a header, line, shipment and distribution, with the finest granularity being at the distribution level.
FIG. 2 is a table showing the accrual account 202, the PO number 204, the transaction date 208, the transaction source 210, receipt number 212, the invoice number 214, the quantity of items 216, the aggregate amount 218 for the quantity of items in the quantity column 216, and a write-off flag 220. As shown in FIG. 2, the following transactions occurred in January 2005, the first of the two periods considered in FIG. 2. On Jan. 1, 2005, five items were received (the transaction source 210 is “Receipt”) and were assigned a receipt number R#1 as shown in the receipt number column 212. Accordingly, $50 was credited to the accrual account ACCT#1, as evidenced by the “−50” entry in the amount column 218. In this exemplary set of transactions, on Jan. 31, 2005, invoice V#1 was received (the transaction source column 210 shows the source of the transaction as being “Invoice”). Invoice V#1 is for five items, which enables the accrual account ACCT#1 to be debited for $50, as noted by the “50” entry in the amount column 218. As these transactions for PO#1 are self-balancing (the received amounts are matched by the invoiced amounts), the balance of accrual account ACCT#1 is zero, and the write-off flag is not asserted, as shown at 220.
As also shown in FIG. 2, during the same first period of January 2005, the first 5 of the 10 items called for by PO#2 were received on Jan. 1, 2005. Accordingly, the accrual account ACCT#1 is credited with this liability; namely $50, as evidenced by the “−50”. Thereafter, on Jan. 31, 2005, invoice number V#2 is received. However, received invoice number V#2 is only for $40; namely for 4 items at $10 each, whereas 5 items were received (see receipt number R#1 in column 212). The accrual account ACCT#1, therefore, may only be debited $40. Therefore, PO#2 is not self-balancing, as the accrual account has a positive balance of $10 (for PO#2, it was credited $50 on Jan. 1, 2005 but debited only $40 on Jan. 31, 2005). Therefore, the write-off flag in column 220 is asserted for PO#2, as suggested by the “Y” entry in column 220 for PO#2.
As all of the items ordered through PO#1 and PO#2 have not yet been received as of Feb. 1, 2005, their respective entries are brought forward to February and repeated. That is, rows 222 and 224 of the February 2005 table, corresponding to purchase order number PO#1, are the same as the first two rows of the table for January 2005. Likewise, rows 230 and 232 of the February 2005 table, corresponding to PO#2, are the same as rows three and four of the January 2005 table. As shown in FIG. 2, on Feb. 1, 2005, five items ordered on PO#1 were received and assigned receipt number R#3, as shown at row 226. Accordingly, the accrual account ACCT#1 was credited with the temporary liability of 50, as evidenced by the “−50” entry in the amount column 218. At the end of the month on Feb. 28, 2005, invoice V#3 for the items received on Feb. 1, 2005 was received, as indicated in row 228. However, for some reason, invoice V#3 is only for 4 items; namely $40. As the accrual account ACCT#1 may only be debited for the $40 invoiced by V#3, PO#1, although self-balanced in the first period (January 2005), is now unbalanced in the second period (February 2005). Therefore, the write-off flag is asserted, as shown at column 220.
Turning now to PO#2, five items were received on Feb. 1, 2005, as evidenced by receipt number R#4 at row 234. Therefore, $50 was credited to ACCT#1 on that date. Thereafter, on Feb. 28, 2005, a new invoice V#4 for PO#2 was received as shown at row 236, this time invoicing the recipient for six items, although only five were received during that period. The accrual account ACCT#1 is then debited for $60, as shown in FIG. 2. This over-invoicing may have taken place deliberately to compensate for the under-invoicing on PO#2 of V#2 on Jan. 31, 2005 or for some other reason altogether. Alternatively, the over-invoicing of V#4 may have been accidental. In any case, the status of the write-off flag for PO#2 is now uncertain. Indeed, for PO#2, there are now two alternatives for writing off the January and February 2005 transactions: 1) change the write-off flag for two transactions in January (as PO#2 is now balanced, as the amounts credited to ACCT#1 are matched with corresponding debits) or write off both transactions again in February, as the February transactions (see rows 234, 236) are not self-balancing during that period.
As can be seen from a relatively small number of transactions, according to conventional methods, the entries necessary for reconciliation and write-off of a single accrual account rapidly grow to unmanageable size. Conventionally, even self-balancing POs show up in the table, as seen in the case of PO#1 in January 2005, the first period considered in FIG. 2. Moreover, as can be seen, the manipulation of the write-off flag can be cumbersome. Complicating an already unwieldy table, there may be many individual transactions covered by a single purchase order, and such transactions conventionally add further clutter to the reconciliation and write-off table. Moreover, the format of conventional tables is such that it is not readily auditable and it may be difficult to reconstruct past transactions, as there is no track record kept. From the foregoing, it may be appreciated that improved methods and systems for accrual reconciliation and write-off are needed.